(1)

Pursuant to point (a) of Article 382(4) of Regulation (EU) No 575/2013, transactions between an institution, on the one hand, and a non-financial counterparty as defined in point (9) of Article 2 of Regulation (EU) No 648/2012 of the European Parliament and of the Council (2), on the other hand, that do not exceed the clearing threshold referred to in Article 10(3) and Article 10(4) of that Regulation (EU) No 648/2012, are excluded from the own funds requirements for credit valuation adjustment (CVA) risk, irrespective of whether that non-financial counterparty is established in the Union or in a third country.

(2)

Point (9) of Article 2 of Regulation (EU) No 648/2012 defines a ‘non-financial counterparty’ as an undertaking established in the Union. As a result, the clearing threshold referred to in Article 10(1) of that Regulation does not apply to non-financial counterparties established in a third country.

(3)

Article 382(4) of Regulation (EU) No 575/2013 does not differentiate between non-financial counterparties established in the Union and non-financial counterparties established in a third country. To ensure a level playing field, the same rules should apply to non-financial counterparties established in the Union and non-financial counterparties established in a third country.

(4)

Article 11 of Commission Delegated Regulation (EU) No 149/2013 (3) sets out clearing threshold values per class of OTC derivatives, as required by point (b) of Article 10(4) of Regulation (EU) No 648/2012. Recital 25 of Delegated Regulation (EU) No 149/2013 clarifies that the ‘excess of one of the values set for a class of OTC derivatives should trigger the excess of the clearing threshold for all classes’.

(5)

For a contract to be exempt until the date of its maturity, as laid down in the last subparagraph of Article 382(4) of Regulation (EU) No 575/2013, it should be sufficient that the requirements of that Regulation are met at contract inception. There might be cases, however, where an institution enters into trades with a given non-financial counterparty very frequently, and in some cases, on a daily basis. Verification of whether the status of the non-financial counterparty established in a third country is accurately reflected in the institution's own funds requirements for CVA risk may in those cases impose a disproportionate burden on the institution. It is therefore appropriate to provide for an alternative in the form of an annual verification of the status of the non-financial counterparty established in a third country. The frequency of verification should be increased to quarterly, however, where the gross notional amount of transactions for a class of OTC derivatives by a non-financial counterparty is close to exceeding the clearing threshold for that class. That should allow for more frequent monitoring of whether that clearing threshold has been exceeded, given the higher likelihood that this will be the case.

(6)

Article 382(4)(a) of Regulation (EU) No 575/2013 states that transactions with non-financial counterparties, that do not exceed the clearing threshold specified in paragraphs 3 and 4 of Article 10 of Regulation (EU) No 648/2012, shall be excluded from the own funds requirements for CVA risk. Therefore, where, following the assessment set out in Regulation (EU) No 575/2013, an institution discovers that one of its counterparties established in a third country either does not qualify as a non-financial counterparty or where the transactions concerned exceed the clearing threshold as specified therein, the institution is required to compute own funds requirements for CVA risk in accordance with Title VI of that Regulation for all OTC derivative instruments with that counterparty that fall within the scope of Article 382(1) of that Regulation.

(7)

This Regulation is based on the draft regulatory technical standards developed in cooperation with the European Securities and Markets Authority and submitted by the European Banking Authority to the Commission.

(8)

The European Banking Authority has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits, and requested the opinion of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010 (4),